Are developers flooding uptown with too many luxury apartments?

A view of Bank of America Stadium from the Entertainment Kitchen along the roof of Museum Tower on Tuesday, June 20, 2017.
A view of Bank of America Stadium from the Entertainment Kitchen along the roof of Museum Tower on Tuesday, June 20, 2017.

Tenants are signing leases for three new uptown apartment towers, the latest in a wave that’s flooding the market with luxury units commanding the highest rents in the city.

The avalanche of apartments means developers need to find renters for hundreds of freshly built units, a new test for the ongoing apartment boom that’s rapidly reshaping the makeup of the city’s housing stock.

Developers and real estate experts acknowledge that these projects may face some challenges in the short-term filling up all these units, potentially leading to offers like months of free rent to attract tenants. But they see a healthy long-term market because of job and population growth. In addition, none of the units are for-sale condos, so there’s less chance of the project failures seen in the last decade, they say.

“Everybody is competing for that same group of renters...I would say caution is in line for that market,” said Charles Dalton, who runs Charlotte-based Real Data, an apartment market-tracking service. “But it’s hard to really say we’re going in the wrong direction, because if demand keeps up like it is, it will get absorbed. It may just take a little longer than some people want.”

The uptown development boom raises the question of whether Charlotte’s luxury apartment market is approaching – or has already passed – its peak this cycle. Uptown is the most active market in the city for new apartment construction, with over 2,000 units under construction and even more in the pipeline.

And many of the units are coming on the market at the same time.

These high-end buildings come packed with perks ranging from pet spas to heated rooftop pools, but they also carry the most expensive rates in Charlotte – $1,729 a month, vs. $1,117 overall in Charlotte. Uptown’s apartment vacancy rate has already crept above the citywide average, according to Real Data.

“In the long run, there will certainly be demand for all the supply,” said David Ravin, head of Northwood Ravin. The company owns the 51-story Vue building and is building another 22-story apartment tower on Stonewall Street set to open next year.

“Is there going to be some short term softness? Yes,” said Ravin.

The Museum Tower, 43 stories total on top of the Mint Museum, is moving in tenants, while SkyHouse Uptown opened its second 24-story tower Thursday on North Church Street. Ascent, a 30-story tower next to Romare Bearden Park, is leasing units as crews wrap up construction.

The new apartment buildings are chasing tenants who can afford to pay $2,000 for a one-bedroom apartment, people who fall into the category of “renter by choice.” The gleaming towers feature top-of-the-line amenities that weren’t common even in high-end condominiums before the recession: Rooftop pools, spas for washing pets, package rooms with refrigerated storage for meal-delivery services. At Crescent Stonewall Station, next to the Blue Line light rail, 450 apartments are under construction atop a Whole Foods Market, set to be the first full-sized grocery store uptown.

“There’s certainly a lot of competition out there,” Fred Klein III, partner at Childress Klein, said during a tour of the Museum Tower this week. That building, which opened just weeks ago, is about 15 percent leased, with three to six new residents moving in each week.

With thousands of similarly situated new apartments coming to the uptown market and all seeking top-dollar rents, developers are betting that renting in uptown will be attractive enough to affluent Charlotteans to justify their costs, instead of renting a cheaper apartment further away. Uptown’s vacancy rate of 8.4 percent is above the Charlotte-wide average of 6.1 percent, a fact analyst Dalton attributes to the number of new buildings that are coming online.

New residents flock to uptown

If it seems like uptown’s apartment market has sprung up overnight, that’s because of how rapidly it’s grown over the past two decades. In the mid-1990s, about 5,500 people lived uptown, in what was mostly a Monday through Friday, 9-to-5 district for office workers that emptied out after-hours. In 2016, Charlotte Center City Partners estimated uptown’s population had roughly tripled, to 16,500, a figure that’s expected to keep growing.

Dalton, the apartment analyst, said landlords aren’t having trouble finding tenants willing to pay. “The majority of the one-bedroom apartments downtown rent for over $1,500 per month.”

The average in the rest of the city for a one-bedroom: About $979 a month.

One key difference between the current apartment boom and pre-recession residential construction uptown is the total absence of condos this time around. Before the 2008 economic crash and ensuing, many of the high-end towers were for-sale, targeting buyers who wanted to own – or in some cases, flip – uptown real estate.

Some suffered high-profile failures. The Vue, for example, went through foreclosure after only a handful of its 409 units were sold, before Northwood Ravin bought it and turned the building into rental apartments.

One condo tower that tried to get off the ground uptown was canceled in 2016 after developers couldn’t pre-sell enough units. Prices at 1Brevard started in the $400,000s, but the developers said they “discovered post-launch that there is no pre-sale market of any depth for a condominium tower of this size and scale.”

The shift to a rental market means that new apartment towers don’t have the same risk of sitting empty and unsold that plagued condo towers. Owners can always offer enticements to lure new tenants, especially breaks on rents. At the SkyHouse towers, which total 672 new apartments, renters can get up to six weeks free when they sign a new lease, the kind of concession that Dalton expects to become more common.

Rents have been growing slowly uptown, up just 2 percent from a year ago, according to Real Data.

Jim Borders, CEO of SkyHouse Uptown’s co-developer Novare Group, said the building’s first tower is nearly fully leased while the second is about 20 percent leased. He said worries about oversupply downtown have become common in many of the markets in which Novare Group is building apartments, from Denver to Nashville.

“Every single one of them, everyone talks about oversupply,” said Borders. But he’s not concerned about too much supply in the long run. “It’ll take some period of time to get everything leased up and we’ll all compete against each other, and that’s what we do.”

Ravin said questions about apartment oversupply uptown remind him of South End after the light rail opened in 2007.

“I remember having the same conversations about South Boulevard,” he said. “Everyone said there’s no conceivable way those apartments will be absorbed. They were, and now there are even more.”

Stuart Proffitt, managing principal at Proffitt Dixon, said continued job growth uptown will drive the apartment market. His company is building Montage, a 302-unit apartment building on Stonewall Street, just down the street from the Presley, a similarly sized apartment building they own. But he said he expects competition will drive uptown landlords to offer rent breaks to get tenants into new buildings.

“We expect to see concessions,” said Proffitt.

Michael Smith, CEO of Charlotte Center City Partners, said part of what’s driving the construction boom now is developers playing catch-up.

“We went through a period of time during the Great Recession where we were not keeping up with our housing needs,” said Smith, whose group promotes uptown and South End. “I don’t think we’ve overbuilt.”

Ely Portillo: 704-358-5041, @ESPortillo